SBA Issues New FAQs on PPP Forgiveness and More

On August 4, the Small Business Administration (SBA) and U.S. Treasury published 23 FAQs addressing aspects of the Payroll Protection Program (PPP), including payroll costs, nonpayroll costs, forgiveness reductions and other general information. FAQ highlights include:

• Borrowers who submit their PPP loan forgiveness application within 10 months of the end of their “Covered Period” are not required to make payments until the forgiveness amount is remitted to the lender by the SBA. Borrowers receiving full forgiveness will not be responsible for any payments. A borrower receiving partial or no forgiveness will be required to pay the remaining balance of the loan, plus interest accrued from the loan disbursement date.
• Eligible payroll costs and eligible nonpayroll costs incurred before the Covered Period but paid during the Covered Period are eligible for loan forgiveness. Similarly, payroll costs and nonpayroll costs incurred during the Covered Period but paid after the Covered Period could also be eligible for forgiveness if they are paid on or before the business’s next regular payroll or billing date.
• Borrowers with twice monthly or less frequent payroll schedules might need to calculate payroll costs for partial pay periods to determine eligible payroll costs.
• The employer portion of group healthcare benefits paid or incurred during the Covered Period or “Alternative Payroll Covered Period” are eligible for forgiveness. Forgiveness will not be granted for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
• Employer contributions for retirement benefits paid or incurred during the Covered Period or Alternative Payroll Covered Period are eligible for forgiveness. Forgiveness will not be granted for retirement benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
• Owner compensation is capped at $15,385 per owner for the 8-week period or $20,833 per owner for the 24-week period. The limitation applies across all businesses in which the owner has an ownership stake. Owners can choose how to allocate that amount across their businesses.
• Most rules applying to owner compensation were covered in the Interim Final Rule on Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule dated June 22, 2020. However, the FAQs include an additional clarification: health insurance contributions for S Corporation owners with at least a 2 percent stake in the business are not eligible for forgiveness, nor are the contributions for family members. Instead, these amounts are considered part of the owners’ cash compensation.
• Interest on unsecured credit is not eligible for loan forgiveness, although it is a permissible use of PPP loan funds.
• If an eligible organization has a rent or interest payment for a mortgage loan that existed prior to February 15, 2020 but is renewed or refinanced after that date, the lease payments under the renewed lease or interest payments on the refinanced mortgage are eligible for forgiveness.
• Transportation, which is included as a utility eligible for forgiveness, is defined as ‘transportation utility fees assessed by state or local governments.” For more information on transportation utility fees, visit: https://www.fhwa.dot.gov/ipd/value_capture/defined/transportation_utility_fees.aspx
• Electricity supply charges are eligible for loan forgiveness. According to the FAQ, “The entire electricity bill is eligible for loan forgiveness, which may include supply charges, distribution charges, and other charges such as gross receipts taxes.”
• When considering the full-time equivalent (FTE) employee reduction related to forgiveness, borrowers may exclude reductions that occur due to, “(1) an inability to rehire individuals who were employees of the borrower on February 15, 2020 and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.” Within 30 days of the employee’s rejection of the offer to rehire, borrowers must inform the applicable state unemployment insurance office. In addition, borrowers must maintain documentation, which could include a written offer to rehire the individual, a written record of the employee’s rejection of that offer, and a written record of efforts to hire a similarly qualified individual.
• Seasonal employers should use the same 12-week period they used for calculating the maximum loan for the reference period for calculating any loan forgiveness reduction.
• When calculating the forgiveness reduction related to salary/hourly wages, borrowers should only consider decreases in salaries or wages (not all forms of compensation).

For questions regarding your PPP loan or its forgiveness or for support with your PPP forgiveness application, please contact your HBK Advisor.